Good morning, welcome to the presentation of the first quarter of 2018 for Marine Harvest. Together with me to present the numbers, I have the CFO in Marine Harvest, Ivan Vindheim. With that, I wish you all welcome. Just some few highlights in the beginning here. Operational EBIT, a decent quarter for Marine Harvest, EUR 158 million, backed on really strong demand and increased prices from Q4. This has been a kind of a step this quarter. We've seen prices gradually increase through the quarter and continue into April and even into May, basically for all areas. We've seen a cost decrease in Norway compared to Q4 in this quarter. Especially, I'm happy to look into our Consumer Products division.
When we come to that slide, you will see the volume is up, and you will see very good results in a quarter that's normally low in value added or in our Consumer Products division. Ireland is having an exceptional result in this quarter on the back of organic salmon, more than EUR 4 per kilo in EBIT per kilo. Quarterly dividend, NOK 2.6 per share to be paid in Q2 2018. Just quick on the key financials. The top line here is down by 3%, from EUR 892 million - EUR 862 million. Corresponds with the lower volume to a certain extent, also down 3%. Obviously, we are comparing here to the first quarter of 2017, which was an exceptional quarter price-wise for salmon. We have to remember here that in this quarter, the algae bloom situation in Chile was in full effect.
The prices in Q1 2017 was extremely high. With that, you see a reduction in operational EBIT, and that is price-driven. Cost is actually down in the quarter. Quickly into the prices. Ivan will go into details there, but it is, as I said, what we have seen in the market, basically from January and onwards, is a gradually increasing salmon price in all markets continuing into April and May. This is really good and strong demand for our products in the marketplace. That is in all markets, basically almost everywhere. That is on the back of a supply increase of more than 10% in the quarter. It's a very strong market for salmon we're experiencing right now. On to our contract share and our price achievement. Contract share in Norway was 40% in the quarter.
Price achievement was 97%, compared to the spot price. You see in Scotland, very good contracts in Scotland, 112% price achievement, 67% contract share. We do not have contracts on our Canadian West Coast volume. In Chile, we have a little bit contracts. We put in also the quality here, so you have to take that into account, too. The quality in Chile is lower than expected. Actually, both in Canada and Chile, it's below 90%, which drags the price somewhat down. To bridge the result in the first quarter 2017, we use this waterfall, and we see the feed division slightly worse than what we had in Q1 2017. Come back to the explanation of that result. Farming is down, price-driven, 100%. Cost is actually slightly down.
We have Consumer Products doing better than first quarter in 2017 and ending up from EUR 20 - EUR 158 in this quarter. Into the different entities where we operate. First, look at the Norwegian unit. What we see here is that price has come down, as already explained, but all other costs are down compared to Q1 of 2017. Volume is slightly up, feed cost is down, other saltwater cost is down, and non-seawater cost is also down in the quarter. That's at least moving in the right direction, which is good. We have seen both lower feed and health costs, so the control of sea lice in Norway now is better than it's been for a long while, which is a good signal.
It comes with a cost in terms of gill issues and so forth because you have to treat more and clean the nets more. Other than that, fish health is pretty good. It's a little bit different along the Norwegian coast. Come back to that when we go into the different regions. Continue to see better biology on the 17th generation. Right now we're still harvesting on our 16th generation. We'll do so also, for the most part, in the second half. At the end of the 16th generation when we are changing generations, that's what we do May, June, and into July. We'll see some sites here with higher costs. We expect a little bit higher cost in the second quarter for them to drop for the rest of the year.
On the contract portfolio and the volumes we have on contract, this was 20,000 tons as guided on in Q1 2018, as we guided on in Q4. We have, in for Q2, slightly increased the volume, but basically around the same level, around 20,000 tons, and stable also for Q3. We are very okay with our contract portfolio going forward. Into the different regions and the performance in the different regions. I guess we can basically divide Norway into a south-north axis, where in north, the performance, we are from Kvænangen in Norway and the region goes down to Trøndelag. Good performance, good fish health, and also very good production. Region mid goes from partly older Nord-Trøndelag and down to Sognefjorden. The performance here is a little bit split in between. It's better up north and then gradually south of Stadt.
In that area, it's worse and has to do with gill issues on some of the fish. We see it especially in the southern part of Norway where we struggle a little bit with our operation just as of now. You can see that in the numbers. I think we will see, or I know we will see similar development going forward. The further north you go, the more money we make. Those things sometimes changes as well. It's good to be in different places. Scotland. Overall, a good result, even though it's reduced quite a bit from Q1 2017. We harvested 17,000 tons Q1 2017, almost 18,000. We've dropped harvest here with close to 10,000 tons. Obviously, that has a volume effect and a cost effect in our operation.
In addition to that, and the reason for this has been timing of smolt stocking. We will come back to growth in Scotland in 2019. Somewhat increased cost based on scale. Still some high mortality in our Scottish operations. We do not foresee a dramatic change in cost going into the next quarter in our Scottish operation. Still at a high level. Price achievement in Scotland is very good. Canadian operation, also here, a drop in harvest volume in the first quarter from 8,800 tons down to 6,500 tons. The operational EBIT drops significantly on the back of lower price, lower volumes, but also other non-saltwater costs, which is linked more into the harvesting and processing side of the business, is up. This is a concern.
The reason is, we have on the back of a cold winter in British Columbia, also had lower growth than expected. We had some biological challenges. In fact, some jellyfish, some gill issues, some winter wounds in the region in this quarter. It's not been the best of quarters for our Canadian operation. On to Chile. Chile is the production unit on the farming side with the lowest cost in this operation. You can see also here price comes down and price is really the problem for our Chilean unit. The operational EBIT ended at EUR 16.8, up from Q1 2017, but on the back of much higher volumes, 12,300 tons compared to 6,300 tons. This is about the algebra I spoke about earlier. The EBIT per kilo is down from NOK 187 to NOK 136.
Cost is also down, as you can see from the graph. The price is down more. We need to reshape the image of Chilean salmon and get the price back up to where it should be. Slightly higher cost in the second quarter in our Chilean operation. Ireland, Faroe Islands. Ireland, a tremendous quarter. In this operation, we had EUR 4.37 per kilo. I think that must be at least it's very high for this operation and a new record for them. On small volumes, but still 1,500 tons have a significant impact. Faroe Island operation, it's maybe we have a lower EBIT than expected, but we harvested. We have only three sites in Faroe Islands, and here we are, we're at the end of one of the maybe not so good sites in this quarter.
Going forward, low volumes in the second quarter for Faroe Islands before we come into the next harvest generation on our best-performing site. On to Consumer Products. We have made a change here compared to how we have presented before. Before, Consumer Products has been only the European unit. We have taken, because we have developed our Consumer Products segments in the U.S. with new factories in Dallas. We are moving in Miami, increasing the footprint there. We have put in factories on the West Coast as well, and we have done the same in Asia. We have taken all value-added operations and put into one segment, Consumer Products. We're comparing, obviously, to the same numbers last year with, this is comparable numbers. This is, I think, really encouraging. Close to EUR 500 million in sale in finished products, up from EUR 434 million.
21 million up from 13 in EBIT margin, 4.2%. A really good demand in most markets, I have to say. This is actually what creates demand. New, better product in many, many countries. This shows the versatility of salmon and it's really a product that can be sold, and we know that, but in most countries. We will continue this, continue to develop this. We are just as we speak, making a factory in Sweden to supply the Swedish market with the new Consumer Products, and we'll continue our organic growth in this area. fish feed. First quarter for fish feed is slow season, or the low season, I guess, both are correct. In this quarter, we lost EUR 4.3 million compared to zero result in Q1 in 2017. We produced quite a bit of feed here in the first quarter, for the growth season, really.
We have some expenses when we are constructing the site in Scotland that we do not take over CapEx, but we expense off. For this quarter, that has an impact on the result in the first quarter. Slightly delayed, from Q3 - Q4 on the construction of the plant in Scotland. This has to do with, we've got all the permits now, but we had some permitting on a pier there that took some longer time than we expected it to take. Now we are on track and it's really going to be a great project. Plant is, as you can see from the picture, closing in to be finished. With that, I think I leave it to you, Ivan, to go closer into the financials and into the supply and demand side of things.
Thank you, Alf-Helge Aarskog, and good morning, everyone. As usual, we start with the P&L top line of EUR 862 million this quarter. A little bit down compared to the same quarter last year, on the back of lower prices and to a large extent, I would say, offset by better contract prices and the growth within Consumer Products as Alf-Helge Aarskog just told us about. Operational EBIT, EUR 157.6 million. Although it's substantially down compared to the record high level we saw last year on the back of the algae bloom in Chile, it's still great numbers, at least the way we see it. Further down in the P&L, net fair value adjustment of biomass, this time as much as close to EUR 90 million due to the increased prices we saw during the quarter. Income from associated companies, EUR 12.6 million, 100% related to our associated company, Nova Sea.
An underlying EBIT of as much as EUR 2.58 per kilogram in the quarter on 7,000 tonnes. Another great quarter for our associate company, Nova Sea. Net financial items, negative EUR 38 million. Underlying interest expenses, as they are normal. This is driven by the mark-to-market accounting of the last outstanding convertible bond. We saw a significant increase in the share price during the quarter, and consequently, we have to charge the P&L with this equity expense, as you can call it. Underlying EPS in the quarter, EUR 0.25. Net cash flow in the quarter, EUR 21. Dividend paid in the quarter related to the fourth quarter, NOK 2.6 per share. Harvest volumes 81,000 tonnes, in line with the guides we had before the quarter and somewhat down compared to the same quarter last year. We go to the balance sheet or the financial position.
Total balance sheet now amounts to NOK 4.4 billion, which is almost exactly the same as the number at the end of the comparable quarter last year. Net interest-bearing debt, EUR 857 million and equity ratio of 51%. Over to the cash flow. Strong earnings in the quarter, also a strong cash flow, I would say. First quarter and second quarter, all the quarters we release working capital in this industry, whereas we tie it up again in the second half. We also paid taxes this quarter, EUR 50 million, one third of the total forecast for the year, which is EUR 150 million. All in all, EUR 192 million from operational activities. Cash from investments, EUR 85 million, in line with the CapEx budget and the forecast. The increase from last year is mainly driven by the completion of the feed factory in Scotland.
The interest expenses, as already said, normal. The dividend we have visited. We went from EUR 832 million in net interest-bearing debt when we started the quarter to close in at EUR 857 million. IE, quite stable over the quarter. Over to cash flow guidance. No changes since last time, so I will not spend time on the details here. Leave that to the reader. The quarterly dividend, as already said by Alf-Helge Aarskog, NOK 2.6 per share. Overview of the financing. Since the last time we met, we have repaid the high-yield bond, NOK 1.25 billion high-yield bond we had in Norway. It expired during the first quarter. Other than that, no changes. Over to the supply development. Overall, in line with our forecast, and I also would say the expectations in the industry, but a little different distribution than what we foresaw.
Somewhat lower volumes in Europe, 10,000-15,000 tonnes because of a colder winter, and somewhat higher volumes in Chile at the same amount because of, first and foremost, accelerated harvesting due to algae issues. A high supply growth in the quarter. Despite that, we saw a significant increase in the prices during the quarter compared to the fourth quarter, up more than 20% in Europe and 10% in Americas. That development has continued into the second quarter. As Alf-Helge Aarskog said, we see a strong demand for our product and, yeah, the prospects, as we see it in the short term, are still very favorable from a price point of view. Year-over-year, it's down from an unprecedented level in the first quarter last year, in the wake of the algae bloom in Chile in 2016.
This is normalized levels, and we think that the market adapts to the increased prices impressively, especially taking into account the growth in supply we have seen during the quarter. Over to the markets. Positive figures in all markets apart from Japan. Japan has been stable the last 10-15 years, so Japan is Japan, but the rest of the world is eating more and more salmon. The underlying demand is again impressive and something we also see in our prices. Over to industry supply growth. Since last time we spoke, we have taken it down by 2 percentage points. From a range of 3%-8%, now to 1%-6%. For the remainder of the years, the second quarter and the second half, the growth is close to zero.
In terms of supply growth year-over-year, it looks like it's over for now. Over to our own volume guidance. We have also taken our own volume guidance down somewhat, 7,000 tonnes in Norway, now 242,000 tonnes, due to a cold winter and less growth. We want to get those volumes back. Scotland unchanged. Canada, we have taken down by 3,000 tonnes to now 43,000 tonnes. Chile unchanged, and other units unchanged. All in all, 400,000 tonnes versus 410,000 tonnes since the last quarter. That's all from me. With that, I would like to leave the word to Alf-Helge Aarskog again. Thank you.
Thank you very much, Ivan Vindheim. Just to sum up and look a little bit ahead. Marine Harvest has a strong financial position. We continue with our organic growth initiatives. We've looked at the feed part, and that is ongoing on the farming side, we are working on the east coast of Canada. We have got some fish into our hatcheries there and have started up at least. The Northern Harvest acquisition is still not finalized by the Competition Bureau Canada, but we are awaiting the outcome. We have a substantial potential to grow also in other countries. Scotland, for example, next year has potential for more fish. The same goes really for Norway, if we can get the biology and everything the way we want it.
We continue to invest into the freshwater side of the business in many of our countries to take the throughput time a little bit down and to increase the smolt size a little bit. That's also be a help here. On the Consumer Products side, that is in focus, continue to build up plant, some small and efficient, some modernization of the big plants. For us, it is extremely important to have a good product development team, be in many markets, develop new and better product for the consumers going forward. I think Marine Harvest does that in a scale that nobody else is even close to on a global scale. I guess I already touched on the Northern Harvest side of things. We have submitted all information and just now awaiting the result for the Bureau's decision.
In terms of global cost savings program, we showed that last time. So far, we have done about EUR 23 million is finalized. That in the first quarter of Norway, so well underway. Again, we have many times spoken around the positive demand response in several markets. Fish Pool also kind of confirms that, has gone from EUR 5.5 per kilo in February to EUR 6.4 on a 12-month horizon. Dividend, we've spoken about many times, but just to pinpoint it one more time, NOK 2.6 per share to be paid out in Q2 2018. With that, I think we will open up for questions or even maybe you can come up and help me and answer some of them, probably. Give it a good shot. Here are many. Maybe we start with Kolbjørn. Alexander was closest to the microphone. Sorry, Kolbjørn.
Alexander Aukner at DNB Markets. For next quarter, you have 37% on contracts, which is surprisingly high compared to what the other companies have reported. They've indicated it's been difficult to sign contracts because of large variations in price expectations. A comment on how you see the contract market and also the price levels of your contracts would be appreciated.
Well, we contract with the big retailers first and foremost. We have a long-term relationship. That work goes on when it's good times and when it's bad times. There's nothing new under the sun in that regard. The 37% share is in line with our strategy. This is planned. Going forward, we expect to maintain the same ratio on average. When it comes to prices, that depends on the market. Sometimes you get extremely good prices and sometimes not. I would argue that the market right now is very good. Good timing for doing new contracts. For an industrial player as ourselves, we look through all this. This is the strategy we have. We are working with the big retailers. We are into this in the long run, and so are them. You need contracts.
This is a never-ending story and business and not to mention work, hard work.
Thank you.
Kolbjørn was next back there. Okay.
Tore Tønseth, SpareBank Markets. What about compensatory growth? Have you taken that into account setting the 2018 volume forecast? What do you think about it? Will it kick in or is it an important factor or not?
Compensatory growth is something we saw. If you go back into the old days when we had feed quotas and we had to starve the fish for 4 and 6 weeks, you could, to a certain extent, see that. This is back in the 1990s almost. I think we have fed the fish, and they are satiated every day, so it's not about that. It's just that they're eating a little bit smaller. I think that is a small factor, to be honest with you, in this climate we are now.
Okay, the last question. If I read the report correctly, you have 5% less biomass in the sea at the moment. Is that correct?
What do you compare with?
The biomass, the total biomass in tons. Is it 5% less year-over-year at the moment? At the end of the quarter.
No, it's up year-over-year.
Slightly up.
Yeah.
Okay. Compared to your total growth, it's still below 1 expected harvest volume.
How do you calculate it then?
If you look at the total harvest volume in Marine Harvest, it's higher than the standing biomass. Which region and when do you expect to grow better, if you understand? When did you have problem last year, if you understand my first question correctly?
If you go back 1 year, we had 210,000 tons for Norway. According to the latest forecast, 242,000 tons. The lion's share of the recovery here is in Norway, and the 17th generation is crucial in that regards. So far it performs better. I think you suggested that we were a little bit on the positive side here, but I would argue that things are looking much better this year than what it did last year at the same time. You never know. We have the summer, the biggest part of the growth takes place in the second half, so it's not like we can guarantee anything. According to the capital, which is the biomass here, we think 400,000 tons is doable. Back to your question, where is the recovery taking place? It's Norway.
Okay. Thank you.
Yeah.
Thank you. I go for 2 questions then. First of all, how do you experience the situation with regards to China/Vietnam after the turbulence that has been taking place over the past month? Secondly, some views on the suggested or the process on the resource tax in Norway. Thanks.
Yes. First on to China/Vietnam situation. In that case, Marine Harvest had a very clear strategy. We follow local laws and regulations in this case and have done so the entire time. In regards to that, and also it's obviously not good when things like this is happening, but we have to do our part and do it right, and that's what we do. I think the Chinese government is well capable to see through the whatever challenges there are. On to, I guess you said the resource tax system there. There are many proposals just as of now. I think my statement would be that I think everybody can agree that there has been a cost challenge into the Norwegian industry. It is a fact that the cost over last 6 year is up 100%.
Then we know that this industry is in international competition, and that is without any doubt. Salmon can be produced in many countries. I think any cost increase into this business is not certainly a good thing when cost is the biggest challenge. Tax we look upon as a cost. I think I've heard at least from many politicians that the tax burden shouldn't be totally increased, but there is a lot of tax suggestions. I think the good thing here is to go in and take a good look at all these different suggestions. Our policy has been that what we think is a good thing is that local communities get more of the value creations on the basis of not an increased total tax burden for the industry.
Right now, many different suggestions on how to do it and what should go up and down. I think it is very smart to evaluate this question.
Just a quick clarification on the cost savings program. You say EUR 50 million and that 23 of those is taken out, or are they already taken out as we've already seen the effect in the first quarter? Are the investments made, so we will see them coming very soon into the P&L?
Well, you know the system in this industry. Cost to stock, one and a half year on inventory, at least for some of the cost. The seaward cost, if you include freshwater cost, it can be as much as 2, 3 years. The full year effect in the P&L will take some time. In the end, this is about cash, and the measures have been taken and the full year effect on a cash basis, we will see by close of play this year. Unfortunately, because of the way accounting works, it takes longer to see it in the P&L. That's the way we do it in business. We face everything. Cash is one thing, and yeah, P&L is something else, in the short term. In the long run, it's the same, obviously.
Lage Børen, Carnegie. We're now given record high price level in the spot market, contract prices moving up. We're likely going to get the same retail prices now being pushed to the consumer in the next months. Even the low growth scenario for supply in 2nd half of the year, we will have more fish coming into the market than last year. As you remember, last year, we had the very unexpected dramatic drop in the spot price. My question is, do you feel that the market is now better equipped to handle that level of supply we saw in the 2nd half of last year?
You want to take it?
Yeah. We think so. We do. It's same amount of volumes, and we have had 1 year to build markets. We think so. In the end, the proof of the pudding is in the eating. We will see. We believe in this also in the short term. The 1st quarter and the market response was much more impressive than what we expected. I guess we could say the same for the industry in general. There are no indication of that 2nd half like for like. It should be better. You have the seasonality. You have followed this for a while. That will take place also this year, I think. In general, yeah, a better market, relatively speaking.
Any more questions? If not, you have one, Kim? No?
No questions.
No. Okay. I would like to thank you, everybody, for coming, and have a great day.